Repeal, replace models benefit high-income earners, young enrollees

The type and amount of subsidies individuals would get to assist in purchasing health insurance if the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) is repealed and replaced would be of paramount importance for lower to moderate-income individuals without employer-sponsored plans. An analysis by the Kaiser Family Foundation estimated that the average health insurance premium tax credit received by consumers in 2020 would be at least 36 percent lower under replacement proposals being discussed by Republicans in Congress than under the ACA.

The average tax credit also would increase more slowly under replacement proposals. In the House Discussion Draft alternative to the ACA, the average tax credit for current ACA marketplace enrollees would rise from an estimated $2,957 in 2020 to $3,729 in 2027. By comparison, the average tax credit under the ACA would be $4,615 in 2020, increasing to $6,648 in 2027.

Background. The ACA provides three types of financial assistance to help people afford health coverage: (1) Medicaid expansion for those with incomes below 138 percent of poverty, which the Supreme Court subsequently ruled to be a state option; (2) refundable premium tax credits for people with incomes from 100 percent to 400 percent of the poverty level who purchase coverage through federal or state marketplaces; or (3) cost-sharing subsidies for people with incomes from 100 percent to 250 percent of poverty level to provide lower deductibles and copays when purchasing silver plans in a marketplace.

Tax credit projections. Consequently, the impact will vary for different groups of individuals. The tax credits under the ACA are higher for people with lower incomes than for people with higher incomes, and no credit is provided for individuals with incomes over 400 percent of the poverty line. The replacement proposals, in contrast, do not vary the credit amount with income and so would provide relatively more assistance to people with higher incomes. Similarly, the ACA tax credits are relatively higher in areas with higher premiums, while the replacement proposal credits do not vary by location. For premiums that grow more rapidly than inflation over time, the replacement proposal tax credits will grow more slowly than those provided under the ACA.

For instance, under the ACA in 2020, the researchers projected that a 40-year old making $20,000 per year would be eligible for $4,143 in premium tax credits, not including the additional cost-sharing subsidies to lower his or her deductibles and copayments. Under either the House Discussion Draft or Empowering Patients First Act, this individual would be eligible $3,000 or $2,250, respectively.

The same 40-year old would pay $5,101 annually as an average ACA premium in 2020 for a silver plan on the market, meaning that the tax credit would cover 81 percent of his or her total premium. A House Discussion Draft tax credit for this same individual would account for 59 percent of the premium and the Empowering Patients First Act tax credit would account for only 44 percent of the ACA benchmark. The researchers noted that under either the House Discussion Draft or Empowering Patients First Act, premiums could be lower if fewer benefits are covered, although out-of-pocket costs would therefore be higher for people who use health care services. However, unlike the ACA, the House Discussion Draft and Empowering Patients First Act provide tax credits to people over 400 percent of the poverty level, as well as to people current buying individual market coverage outside of the marketplaces.

Conclusions. Generally, individuals with lower incomes, who are older, or who live in markets with higher premiums would receive larger tax credits under the ACA than under replacement proposals. Individuals with higher incomes, who are younger, or who live in areas with lower premiums would benefit more from alternative plans.

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